AJX Fundamentals thread, page-28

I recall Dirk more than once recently referring to the substantial savings in raw material costs that have become available as a result of economies of scale. I believe savings of 60-70% were stated. This was forwarded as the primary reason for the sudden lowering of COGS and consequent move to high margins.

There is a secondary issue relating this to the business model. The standard model for the industry is that following market research product development progresses in-house at company (shareholder) expense prior to manufacture and sale. In Alexium’s case development has been undertaken in consort with clients through tailored trials located at their facilities. Those clients have met a significant part of the trialing costs, at least for the raw materials involved. Whilst this resulted in negative gross margins, it is still preferable to the standard alternative.

Once developed those products have become a ‘platform’ that doesn’t require further development. For this reason I don’t believe the earlier negative margin activities should be viewed as mismanagement. Rather they effected a means to subsidise the product development phase.